Throughout the crisis, the ECB has failed to act independently of eurozone banks, especially those in politically powerful countries such as Germany, while the EBA’s previous stress tests have all quickly been discredited. And given their capture by the banks they oversee, the pressure not to offend powerful governments and their desire not to spark market panic, this latest effort looks like another whitewash. Moreover, captured national supervisors, which tend to see local banks as national champions, were intimately involved in the process and doubtless had plenty of scope to hide problems, as indeed do banks themselves, which are always better informed than watchdogs. As I suggested it would, the assessment singles out less important banks in less politically powerful countries and lets German banks off the hook.

The premise for the banking union was that given that national supervisors had been less than honest about domestic banks’ problems, an independent and more rigorous eurozone supervisor was needed. But given that the AQR finds only small discrepancies with assessments by banks and national supervisors – the book value of banks’ €22 trillion in assets is adjusted by a mere €48 billion, while non-performing loans are increased by only 18% (€136 billion) to $879 billion – either the banks and national supervisors were already honest, which we know isn’t the case, or the ECB isn’t being honest either.

Even if you take the ECB at its word, the exercise is not comprehensive. The AQR covers only 57% of the risk-weighted assets of 130 banks that account for 81.6% of eurozone bank assets, ie, less than half (46.5%) of eurozone bank assets. Some of the exclusions are major and significant: Germany’s savings banks, the Sparkassen, which collectively have more than €1 trillion in assets, are not part of the exercise; the ECB also takes on good faith that many of the residential mortgage assets of German banks are properly valued – because why would they have an incentive to lie? Two of the politically powerful German banks that scraped through the assessment, bailed-out Commerzbank and HSH Nordbank (chaired by former German deputy finance minister and EBRD President Thomas Mirow), are among those benefiting from the ECB’s good faith in them.

Nor are the stress tests particularly stressful. They require banks to have at least an 8% Tier 1 capital ratio in the baseline scenario and only 5.5% in the adverse scenario. But as has been pointed out by Bank of England chief economist Andy Haldane and many others, risk-weighted asset ratios are easily manipulable and are a poor guide to a bank’s strength. A simple, unmanipulated leverage ratio of assets to debts should at the very least be used as a backstop. As the calculations by Acharya and Steffen show, they suggest much bigger problems in eurozone banks than the ECB/EBA claim.

The baseline scenario in the stress tests is based on the winter forecast of the European Commission, which has consistently been over-optimistic throughout the crisis. For example, when my book European Spring: Why Our Economies and Politics are in a Mess – and How to Put Them Rightwas published in April, the Commission claimed that the eurozone recovery was “strengthening”. It has since stalled. The adverse scenario is based on a eurozone recession and a return of bond-market stress, but fails to cover the possibility of deflation. Indeed, the adverse scenario is based on inflation scenarios that are actually optimistic: 1.0% in 2014 (it is currently 0.3%), 0.6% in 2015 and 0.3% in 2016. Given that deflation would wreak havoc with banks’ balance sheets, that is a farce.

This is just an initial assessment; given the huge volume of information provided by the ECB and EBA, I’ve only had time to look through some of it. But it is enough to suggest that this latest exercise by eurozone banking authorities is another whitewash.